Brazil's insurance regulator, the Superintendency of
Private Insurance (SUSEP), recently issued regulations
establishing that cessions to occasional reinsurers (see
definition below) by Brazilian insurers may not exceed 10% of
the total premiums ceded to reinsurers. The new regulations
further establish that no Brazilian insurer may cede more than
50% of the risk it underwrites to occasional reinsurers. The
moves were not unexpected, having been foreshadowed in
SUSEP's discussions with the industry.
The Brazilian reinsurance market was opened to foreign
reinsurers for the first time earlier this year. On January 15,
2007, Complimentary Law No. 126 established a framework for
ending the long-standing government monopoly on the reinsurance
business in Brazil and opened the Brazilian reinsurance market
to private foreign insurers. On December 17, 2007, SUSEP and
the National Council on Private Insurance ("CNSP")
issued Resolution No. 168, which implemented Complimentary Law
No. 126 and established the requirements for foreign reinsurers
wishing to underwrite reinsurance in Brazil. Resolution No. 168
became effective on April 19, 2008.
Complimentary Law No. 126 and Resolution No. 168 established
three categories of private reinsurers: (1) local reinsurers
(resseguradores locales); (2) admitted reinsurers
(resseguradores admitidos); and (3) occasional
reinsurers (resseguradores eventuais). Local
reinsurers are defined as reinsurers organized under Brazilian
law as Brazilian corporations (sociedades anonimas).
Admitted reinsurers are defined as reinsurance companies
incorporated under the law of foreign jurisdictions that
maintain a representative office in Brazil and are registered
as such with SUSEP. Finally, occasional reinsurers are defined
as reinsurance companies incorporated in foreign jurisdictions
that do not have a representative office in Brazil, but are
registered with SUSEP.
A foreign reinsurer not to wising to establish a
representative office in Brazil, is permitted to register with
SUSEP as an occasional reinsurer if it satisfies the following
requirements:
- Authorization in its country of incorporation to underwrite local and international reinsurance in the same lines as it seeks to underwrite in Brazil;
- Solvency, and operation in its country of incorporation for greater than 5 years;
- A minimum net worth/surplus of greater than US$150 million or the equivalent;
- The following minimum rating from the following rating agencies: Standard & Poors (BBB), Fitch (BBB), Moody's (Baa2), AM Best (B++); and
- A permanent agent domiciled in Brazil, with broad powers of administrative and judicial representation.
In addition, no foreign reinsurer may register as an
occasional reinsurer if it is incorporated in a "tax
haven," a term defined to mean any jurisdiction in which
income tax is levied at less than 20% and/or where reinsurance
companies are subject to excessively strict rules of
confidentiality regarding their constitution and
composition.
Complimentary Law No. 126 and Resolution No. 168 also impose
certain limitations on the lines of reinsurance that may be
accepted by a foreign reinsurer and on both the percentage of
reinsurance that an insurer may cede to a foreign reinsurer and
the overall volume of reinsurance that may be underwritten in
Brazil on an annual basis by occasional reinsurers:
- Occasional reinsurers may not reinsure of life insurance and pension plans, which are reserved for only local reinsurers.
- Ceding companies must offer local reinsurers the right of first refusal on at least 60% of the premiums ceded until January 16, 2010 (and 40% thereafter). This vetting requirement permits a ceding company to first obtain quotes from foreign reinsurers and then present a quote to local reinsurers, who will have either 5 days (facultative reinsurance) or 10 days (treaty reinsurance) to match such quote. The vetting requirement will be fulfilled when local reinsurers either accept 60% of the risk or when all local reinsurers have refused or partially refused to match the foreign reinsurer's quote.
- The Brazilian government has the right to impose an annual cap on occasional reinsurer's participation in the Brazilian reinsurance market.
SUSEP's new regulations address this final point,
setting the annual cap on cessions to occasional reinsurers at
10% of the overall Brazilian reinsurance market and 50% of any
individual Brazilian insurer's underwritten risk.
It remains to be seen whether these limitations will
discourage foreign reinsurers from registering as occasional
reinsurers in Brazil, or if they will opt instead to register
as admitted reinsurers or avoid the jurisdiction
altogether.
For a copy of Complimentary Law No. 126,
please click here .
For a copy of Resolution No. 168,
please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.